Judge: Countrywide shareholders' suit can proceed

In a ruling issued Tuesday, U.S. District Judge Mariana R. Pfaelzer in Los Angeles sided with several public pension funds, finding that their witnesses' accounts of Countrywide's business practices were compelling.

"Plaintiffs' allegations create a cogent and compelling inference that (Countrywide directors) misled the public with regard to the rigor of Countrywide's loan origination process, the quality of its loans, and the company's financial situation -even as they realized that Countrywide had virtually abandoned its own loan underwriting practices," Pfaelzer wrote in the 61-page ruling.

Pfaelzer noted that several witnesses ready to testify for the funds gave persuasive accounts of Countrywide's business, including allegations that the company rewarded employees for boosting loan volume rather than for generating quality loans.

The lead plaintiffs in the case are several pension funds, including the Arkansas Teacher Retirement System, the Fire & Police Pension Association of Colorado and the Public Employees Retirement System of Mississippi.

They claim Countrywide directors and officers failed to provide enough oversight of the lender and misled shareholders about the company's true financial state.

Countrywide Chairman and Chief Executive Angelo R. Mozilo and 13 other current and former top executives and board members are named as defendants in the complaint.

Blair Nicholas, an attorney for the pension funds, said his clients are looking forward to having their day in court.

"The Board's lack of oversight has tarnished Countrywide's reputation and exposed the company to significant liability," Nicholas said via e-mail Wednesday. "As shareholders, we believe it is our duty to step in and remedy this wrong."

A spokesman for Calabasas, Calif.-based Countrywide did not immediately reply to an e-mail request seeking comment.